RAIL FOR LONDON LIMITED v THE MAYOR & BURGESSES OF THE LONDON BOROUGH OF HACKNEY

An estoppel by convention may, in an appropriate case, enlarge the effect of an existing contract by binding parties to a shared interpretation of it. It may also support a cause of action that would otherwise fail. The doctrine cannot, however, subvert consideration by enforcing a gratuitous promise or creating a legally binding relationship from nothing. Whether a post-contractual convention concerning the original meaning of a contract impermissibly increases one party’s obligations is fact-sensitive. Where the law is uncertain and the pleaded facts require findings about the parties’ assumptions, reliance and unconscionability, strike-out is inappropriate unless the case is bound to fail.

The claimant sought declarations concerning the rent payable under a long lease of railway arches after the surrender of a sub-underlease. The defendant pleaded, among other matters, that rent remained payable on the true construction of the lease, by an implied term, or by estoppel by convention. The claimant applied under Civil Procedure Rules 1998, rule 3.4(2)(a), to strike out the estoppel paragraphs, arguing that the defendant was using estoppel as a sword to impose a contractual obligation without consideration. The central issue was whether that argument was legally incapable of succeeding on the pleaded facts or required determination after trial.

1. Application refused. The estoppel-by-convention defence disclosed reasonable grounds. The relevant legal points were open to serious argument, and the court could not be confident that the defence was bound to fail.
2. The doctrine is not confined to conventions arising before or contemporaneously with the relevant transaction. Authorities including Amalgamated Investment and Republic of India Steamship supported the possibility of a post-contractual convention concerning the meaning of an existing agreement.
3. Estoppel may enlarge the effect of an agreement and may enable a party to succeed on a contractual cause of action that would otherwise fail. It cannot be used to create a legally binding relationship from nothing or to enforce a gratuitous promise in a manner that subverts consideration. The precise boundary between an estoppel concerning the original meaning of a contract and an impermissible contractual variation remained unsettled.
4. The pleaded case required factual findings about the parties’ shared assumptions, their communication and reliance, detriment, unconscionability, and whether the convention concerned what the lease had always meant or what it meant after the surrender. Those matters could affect the legal characterisation of the estoppel and were better decided at trial.
5. The fact that estoppel was pleaded defensively against a claim for declaratory relief was relevant but not decisive. The application was therefore refused without determining whether the alleged estoppel would ultimately succeed or its temporal scope.